How to Litigate a Case in Tax Court: 6 Important Facts

Litigating a Case in US Tax Court – A ‘How To’ Litigation Primer

Litigating a Case in US Tax Court: A ‘How To’ Litigation Primer

One of the benefits for US taxpayers who seek to challenge the Internal Revenue Service on a tax or penalty is that they have the opportunity to litigate their case in tax court. Unlike other federal courts such District Court or the Federal Court of Claims, the rules for litigating in tax court are a bit more relaxed.  As a result, the tax court provides taxpayers the ability to represent themselves in court instead of having to pay an attorney to represent them. A Taxpayer may still want to seek assistance from a Board-Certified Tax Law Specialist attorney who is experienced in litigating tax court cases, but it is not required. Conversely, when taxpayers represent themselves in other federal courts, it can be much more overwhelming…and the courts are much less patient with self-represented litigants. Let’s take a brief look at six important facts about litigating a case in the US tax court.

Filing the Petition Has a Strict Deadline

Most of the time, the way a taxpayer receives notice that they are clear to file a US tax court case is to receive a Notice of Deficiency (NOD Letter). This allows the Taxpayer 90 days to file the petition unless they reside outside of the country in which they have 150 days. Court cases have been clear that if the taxpayer misses the deadline even by a day they lose the opportunity to litigate tax court. The same is not true if the taxpayer is filing a petition following an unsuccessful Collection Due Process Hearing in which the Supreme Court ruled that taxpayers may have additional time beyond the 30 days identified in the statute.

Small vs Large Case Procedures

Depending on the size of the case, the taxpayer may have the opportunity to resolve a smaller case using the small or ‘S Case’ procedures. While these cases tend to be more streamlined, it is important to note that there is no right to appeal an S case decision to the US Court of Appeals. Likewise, the IRS cannot appeal the outcome either, so it is important to consider that if you were unsuccessful in Tax Court, would you want to consider pursuing the case at the Court of Appeals.

No Need to Prepay Tax/Penalty First

One of the main benefits of pursuing a tax court litigation case is that the taxpayer is not required to pre-pay the tax. In other Federal Courts, taxpayers usually must first pay the amount due to the IRS, make a claim for refund at the IRS level — and then when the refund claims are rejected or the IRS goes radio silent for an extended period, the taxpayer has the opportunity to then pursue the matter in federal court. This is referred to as the Flora Rule.

FBAR is Not a Tax Form

Recently, there has been an uptick in litigation involving foreign bank and financial account reporting. The most common form taxpayers have to file to disclose their foreign accountants is the FBAR. Since technically the FBAR is not a tax form and does not involve taxes per se, tax courts do not hear these types of cases;  instead, the matter is litigated in federal court in District Court or the Federal Court of Claims – noting that the Flora rule may not apply to FBAR.

The Court May Send You Back to IRS Appeals

Oftentimes, when a tax court case begins, depending on whether the case first went through appeals and what that outcome looked like, the judge may refer the case back to appeals to try to settle the case first before moving forward with further litigation at the tax court — and ultimately a trial if the case does not settle.

You Do Not Get to Go Before A Jury of Your Peers

While there are many benefits to going to tax court, one of the negatives is that taxpayers do not have the opportunity to present their case to a jury of their peers. Rather, with the tax court, the court judge will ultimately decide the fate of the taxpayer without a jury.

Before deciding to litigate in Tax Court instead of other federal courts, it is important for taxpayers to evaluate their situation and determine where they think they will have the best opportunity for success. While not having to pay the tax or penalty upfront is enticing, not having a jury may be a detriment in many types of cases — especially in more technical cases where the taxpayers want to lean more on a jury understanding their overall facts and circumstances — rather than a tax court judge focused on the specific technicalities of the tax code.

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Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

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